8/3/2012: Economy on a flat-line: Sunday Times 4/3/2012

This is an unedited version of my article in Sunday Times March 4, 2012.

This week, the conflicting news from the world’s largest economy – the US, have shown once again the problems inherent in economic forecasting. Even a giant economy is capable of succumbing to volatility while searching to establish a new or confirm an old trend. The US economy is currently undergoing this process that, it is hoped, is pointing to the reversal in the growth trend to the upside in the near future. The crucial point, however, when it comes to our own economy, is that even in the US economy the time around re-testing of the previously set trend makes short-term data a highly imperfect indicator of the economic direction.

In contrast to the US economy, however, Irish data currently bears little indication that we are turning the proverbial corner on growth. It is, however, starting to show the volatility that can be consistent with some economic soul-searching in months ahead. Majority of Irish economic indicators have now been bouncing for 6 to 12 months along the relatively flat or only gently declining trend. Some commentators suggest that this is a sign of the upcoming turnaround in our economic fortunes. Others have pointed to the uniform downward revisions of the forecasts for Irish growth for 2012 by international and domestic economists as a sign that the flattening trend might break into a renewed slowdown. In reality, all of these conjectures are at the very best educated guesswork, for our economy is simply too volatile and the current times are too uncertain to provide grounds for a more ‘scientific’ approach to forecasting.

Which means that to discern the potential direction for the economy in months ahead, we are left with nothing better than look at the signals from the more transparent, real economy-linked activities such as monthly changes in prices, retail sales and house price indices, and longer-range trade flows statistics, unemployment and workforce participation data.

This week we saw the release of two of the above indicators: residential property price index and retail sales. The former registered another massive decline, with residential property prices falling 17.4% year on year in January 2012, after posting a 16.7% annual decline in December 2011 and 15.6% decline in November 2011. With Dublin once again leading the trend compared to the rest of the country, there appears to be absolutely no ‘soul-searching’ as house prices continue to drop. House prices, of course, provide a clear signal as to the direction of the domestic investment – and despite all the noises about the vast FDI inflows and foreign buyers ‘kicking tyres’ around empty buildings and sites – this direction is down.

More interesting are the volatile readings from the retail sales data.

The headline indices of retail sales volumes and values for January 2012, released this week were just short of horrific. Year on year, retail sales declined 0.34% in value terms and 0.76% in volume terms. Monthly declines were 3.7% across both value and volume. Relative to peak, overall retail sales are now down 25% in value terms and 21% in volume. January monthly declines in value and volume were the worst since January 2010. Stripping out motor trade, on the annual basis, core retail sales fell 1.94% in value terms and 2.74% in volume terms, although there was a month-on-month rise of 0.3% in value index. Monthly performance in volume of sales was the worst since February 2011.

Looking at the detailed decomposition of sales, out of twelve core Retail Businesses categories reported by CSO, ten have posted annual contractions in January in terms of value of sales. The two categories that posted increases were Fuel (up 5%) and Non-Specialised Stores (ex-Department Stores) (up 1.7%). The former posted a rise due to oil inflation, while the latter represents a small proportion of total retail sales – neither is likely to yield any positive impact on business environment in Ireland. In volume terms, increases in sales were recorded also in just two categories. Non-Specialised Stores sales rose 1.0%, while Pharmaceuticals Medical and Cosmetic Articles rose 1.5% year on year. Overall, only one out of 12 categories of sales posted increases in both value and volume of sales. All discretionary consumption items, including white goods and household maintenance items posted significant, above average declines in a further sign that households are continuing to tighten their belts, cutting out small-scale household investment and durables. The trend direction is broadly in line with November 2011-January 2012 3-months averages, but showing much sharper rates of contraction in demand in January.

The above confirm the broader downward trend in domestic demand that is relatively constant since Q1 2010 and is evident in value and volume indices as well as in total retail sales and core sales. More importantly, all indications are that the trend is likely to persist.

One of the core co-predictors – on average – of the retail sector activity is consumer confidence. Despite a significant jump in January 2012, ESRI consumer confidence indicator continues to bounce along the flat line, with current 6 months average at 56.5 virtually identical to the previous 6 months average and behind 2010-2011 average of 57.3. Based on the latest reading for consumer confidence, the forecast for the next 3 months forward for retail sales is not encouraging with volumes sales staying at the average levels of the previous 6 months and the value of sales being supported at the current levels solely by energy costs inflation.

Lastly, since 2010 I have been publishing an Index of Retail Sector Activity that acts as a strong predictor of the future (3 months ahead) retail sales and is based both on CSO data and ESRI consumer confidence measures, adjusted for income and earnings dynamics. The Index current reading for February-April is indicating that retail sales sector will remain in doldrums for the foreseeable future, posting volume and value activity at below last 6 months and 12 months trends.

Which means that the sector is likely to contribute negatively to unemployment and further undermining already fragile household income dynamics for some of the most at-risk families. During the first half of the crisis, most of jobs destruction in both absolute and relative terms took place in the construction sector, dominated by men. Thus, for example, in 2009 number of women in employment fell 4.2%, while total employment declined 8.1%. By 2010, numbers of women in employment were down 2.8% against 4.2% overall drop in employment. Last year, based on the latest available data, female employment was down 2% while total employment fell 2.5%. In other words, more and more jobs destruction is taking place amongst women, as further confirmed by the latest Live Register statistics also released this week, showing that in February 2012, number of female claimants rose by 3,479 year on year, while the number of male claimants dropped 8,356 over the same period.

The misfortunes of the retail sector are certainly at play in these. Per CSO, female employment in the Wholesale and Retail Trade sector has fallen at more than double the rate of overall retail sector employment declines in 2010 and 2011. Relative to the peak, total female employment is now down 10.2%, while female employment in retail sector is down 17.9%.

Traditionally, acceleration of jobs destruction amongst women is associated with increasing incidences of dual unemployment households. This is further likely to be reinforced by the increasing losses of female jobs in the retail sector, due to overlapping demographics and relative income distributions. Such development, in turn, will put even more pressure on both consumption and investment in the domestic economy.

CHART

Source: CSO and author own calculations

Box-out:

The forthcoming Referendum on the EU Fiscal Compact will undoubtedly open a floodgate of debates concerning the economic, social and political implications of the vote. Yet, it is the economic merits of the treaty that require most of the attention. A recent research paper by Alessandro Piergallini and Giorgio Rodano from the Centre for Economic and International Studies, University of Rome, makes a very strong argument that in the world of distortionary (or in other words progressive) taxation, passive fiscal policies (policies that target constitutionally or legislatively-mandated levels of public debt relative to GDP) are not feasible in the presence of the active monetary polices (policies that focus solely on inflation targeting). In other words, in the real world we live in, the very idea of Fiscal Compact might be incompatible with the idea of pure inflation targeting by the ECB. Which is, of course, rather intuitive. If a country or a currency block were to pre-commit itself to a fixed debt/GDP ratio, then inflation must be allowed to compensate for the fiscal imbalances created in the short run, since levying higher taxation will ultimately lead to economic distortions via household decisions on spending and labour supply. Given that ECB abhors inflation, the Fiscal Compact must either be associated with increasingly less distortionary (less progressive) taxation or with the ECB becoming less of an inflation hawk.

5/3/2012: Fiscal Compact Referendum: Globe & Mail

My article on Fiscal Compact Referendum for the Globe & Mail : here.

23/6/2012: Sunday Times 10/6/2012

This is an unedited version of my Sunday Times article from June 10, 2012.

Last week, the Irish voters approved the new Euro area Fiscal Compact in a referendum. This week, the Exchequer results coupled with Manufacturing and Services sectors Purchasing Manager Indices have largely confirmed that the ongoing fiscal consolidation has forced the economy into to stall. Irish economy’s gross national product shrunk by over 24% on the pre-crisis levels and unemployment now at 14.8%. The most recent data on manufacturing activity shows a small uptick in volumes of production offset by significant declines in values, with profit margins continuing to shrink. Deflation at the factory gates is continuing to coincide with elevated inflation in input prices. In Services – accounting for 48 percent of our private sector activity – both activity and profitability have tanked in May. The Exchequer performance tracking budgetary targets is fully attributable to declines in capital investment and massive taxation hikes, with current cumulative net voted expenditure up 3.3% year on year in May.

On the domestic front, the hope for any deal on bank debts assumed by the Irish taxpayers, one of the core reasons to vote Yes advocated by the Government in the Referendum, has been dented both by the German officials and by the ECB. Furthermore, on the domestic front, the newsflow has firmly shifted onto highlighting the gargantuan task relating to cutting our deficits in 2013-2015 and the problem of future funding for Ireland.

Per April 2012 Stability Programme Update, Ireland’s fiscal consolidation path will require additional cuts of €5.55 billion over the next three years and tax increases of at least €3.05 billion. Combined, this implies an annual loss of €4,757 per each currently employed worker, equivalent to almost seven weeks of average earnings. This comes on top of €24.5 billion of consolidations delivered from the beginning of the crisis through this year. The total bill for fiscal and banking mess, excluding accumulated debt, to be footed by the working Ireland will be somewhere in the region of €18,309 per annum in lost income.

This has more than a tangential relation to the Government’s main headache – weaselling out of the rhetorical corner they put themselves into when they solemnly promised Ireland’s ‘return to the markets’ in 2013 as the sole indicator for our ‘regained economic sovereignty’.

Even assuming the Exchequer performance remains on-target (a tall assumption, given the headwinds of economic slowdown and lack of real internal reforms), Ireland will need to raise some €36 billion over 2013 and 2014 to finance its 2014-2015 bonds rollovers and day-to-day spending. In January 2014 alone, the state will have to write a cheque for €8.3 billion worth of maturing bonds. The rest of 2014 will require another €7.2 billion of financing. Of €36.5 billion total, €19.3 billion will go to fund re-financing of maturing government bonds and notes, plus €6.9 billion redemptions to Troika. Rest will go to fund government deficits.

At this stage, there is not a snowball’s chance in hell this level of funding can be secured from the markets, given the losses in economy’s capacity to pay for the Government debts. Which means Ireland will require a second bailout. And herein lies the second dilemma for the Government. Having secured the Yes vote in the Referendum of the back of scaring the electorate with a prospect of Ireland being left out in the cold without access to the ESM, the Government is now facing a rather real risk that the ESM might not be there to draw upon. In fact, the entire Euro project is now facing the end game, which will either end in a complete surrender of Ireland’s economic and political sovereignty, or in an unhappy collapse of the common currency.

The average cumulative probability of default for the euro area, ex-Greece, has moved from 24% in April to 27.5% by the end of this week. For the peripheral states, again ex-Greece, average cumulative probability of default has risen from 45% to 52%.

Euro peripherals, ex-Greece: 5-year Credit Default Swaps (CDS) and cumulative probability of default (CPD), April 1-June 1

Source: CMA and author own calculations

These realities are now playing out not only in Ireland and Portugal, but also in Spain and Cyprus.

Spain has been at the doorsteps of the Intensive Care Unit of the euro area for some years now. Yet, nothing is being done to foster either the resolution of its banking crisis, nor to alleviate the immense pressures of it jaw-dropping 24.3% official unemployment rate. Deleveraging of the banks overloaded with bad loans has been repeatedly pushed into the indefinite future, while losses continue to accumulate due to on-going collapse of its property markets. At this stage, it is apparent to everyone save the Eurocrats and the ECB, that Spain, just as Greece, Ireland and Portugal, needs not loans from the EFSF/ESM funds, but a direct write-off of some of its debts.

Spain’s problems are immense. On the upper side of estimated demand for European funds, UBS forecasts the need for €370-450 billion to sustain Spanish banking sector and underwrite sovereign financing and bonds roll-overs. Mid-point of the various estimates is within the range of my own forecast that Spanish bailout will require €200-250 billion in funds, a move that would increase country debt/GDP ratio to 109.9% in 2014 from current forecast of 87.4%, were it to be financed out of public debt, as was done in Ireland or via ESM.

Overall, based on CDS-implied cumulative probabilities of default, expected losses on sovereign bonds of the entire EA17 ex-Greece amount to over €800 billion, or well in excess of 160% of the ESM initial lending capacity.

Europe is facing three coincident crises that are identical to those faced by Ireland and reinforce each other: fiscal imbalances, growth collapse, and a banking sector crisis.

Logic demands that Europe first breaks the contagion cycle that is seeing banking sector deleveraging exerting severe pressures and costs onto the real economy. Such a break can be created only by establishing a fully funded and credible EU-wide deposits insurance scheme, plus imposing an EU-wide system of banks debts drawdowns and debt-for-equity swaps, including resolution of liabilities held against national central banks and the ECB.

Alongside the above two measures, the EU must put forward a credible Marshall Plan Fund, to the tune of €1.75-2 trillion capacity spread over 7-10 years, with 2013 allocation of at least €500 billion. This can only be funded by the newly created money, not loans. The Fund should disburse direct monetary aid to finance private sector deleveraging in Spain, Ireland and to a smaller extent, Portugal. It should also provide structural investment funds to Greece, Italy and Spain, as well as to a much lesser extent Ireland and Portugal.

The funds cannot be allocated on the basis of debt issuance – neither in the form of national debts, nor in the form of euro bonds or ESM borrowings. Using debt financing to deal with the current crises is likely to push euro area’s expected 2013 debt to GDP ratio from 91% as projected by the IMF currently, to 115% - well above the sustainability threshold.

The euro area Marshall Plan funding will require severe conditionalities linked to long-term structural reforms. Such reforms should not be focused on delivering policies harmonization, but on addressing countries-specific bottlenecks. In the case of Ireland, the conditionalities should relate to reforming fiscal policy formation and public sector operational and strategic capabilities. Instead of quick-fix cuts and tax increases, the economy must be rebalanced to provide more growth in the private sectors, improved competitiveness in provision of core public services and systemic rebalancing of the overall economy away from dependency on MNCs for investment and exports.

Chart: Euro Area: debt crisis still raging

Source: IMF WEO, April 2012 and author own calculations

The core problem with Europe today is structural policies psychosis that offers no framework to resolving any of the three crises faced by the common currency area. Breaking this requires neither harmonization nor more debt issuance, but conditional aid to growth coupled with robust resolution mechanism for banking sector restructuring.

Box-out:

This week’s decision by the ECB to retain key rate at 1% - the level that represents historical low for Frankfurt.  However, two significant developments in recent weeks suggest that the ECB is likely to move toward a much lower rate of 0.5% in the near future. Firstly, as signalled by the euro area PMIs, the Eurozone is now facing a strong possibility of posting a recession in the first half of 2012 and for the year as a whole. Secondly, within the ECB governing council there have been clear signs of divergence in voting, with Mario Draghi clearly indicating that whilst previous rates decisions were based on a unanimous vote, this time, decision to stay put on rate reductions was a majority vote. A number of national central banks heads have dissented from previous unanimity and called for aggressive intervention with rate cuts. In addition, monetary dynamics continue to show continued declines in M3 multiplier (which has fallen by approximately 40 percent year on year in May) and the velocity of money (down to just under 1.2 as opposed to the US 1.6). All in, the ECB should engage in a drastic loosening of the monetary policy via unsterilized purchases of sovereign debt and cutting the rates to 0.25-0.5%, with a similar reduction in deposit rate to 0.25% to ease the liquidity trap currently created by the banks’ deposits with Frankfurt. The ECB concerns that lower rates will have adverse impact on tracker mortgages and other central bank rate-linked lending products held by the commercial lenders is misguided. Lower rate will increase banks’ carry trade returns on LTROs funds, compensating, partially, for deeper losses on their household loans.

11/1/2014: Don't mention the 'D' word in the Eurozone, yet...

Bloomberg this week published a note analysing the GDP performance of the euro area countries during the Great Depression and the Great Recession: http://www.bloomberg.com/news/2014-01-06/europe-s-prospects-looked-better-in-1930s.html. The unpleasant assessment largely draws on the voxeu. org note here: http://www.voxeu.org/article/eurozone-if-only-it-were-1930s.

Perhaps the most important (forward-looking) statement is that in the current environment "complying with the EU's debt-sustainability rules will entail severe and indefinite budget stringency, clouding the prospects for growth still further". This references the EU Fiscal Compact and 2+6 Packs legislation.

And on a related note, something I am covering in the forthcoming Sunday Times column tomorrow (italics in the text are mine and bold emphasis added):

"What are the fiscal lessons? First, avoid deflation ... at all costs. ... Beyond that, the options in theory would seem to be financial repression, debt forgiveness, debt restructuring and outright default. Financial repression, the time-honored remedy, would seem to be out of bounds... and EU governments aren't yet ready to contemplate the alternatives [debt forgiveness, restructuring and defaults]. At some point, they will have to. In the 1930s, the situation didn't look so hopeless."

But why would the default word creep into the above equation?

Update: and another economist calling for debt restructuring/default denouement: http://www.voxeu.org/article/why-fiscal-sustainability-matters#.UtJWBR7i-nh.gmail
I know, I know - everything has been fixed now, so no need to panic...

15/6/2012: Some probabilities for post-Greek elections outcomes

Some probabilistic evaluations of post-Greek elections scenarios and longer range scenarios for the euro area:

In considering the possible scenarios for Ireland’s position for post-Greek elections period, one must have an explicit understanding of the current conditions and the likelihood of the euro area survival into the future.

Short-term scenarios:

In my opinion, there is currently a 60% chance that Greece will remain within the euro area post elections, but will exit the common currency within 3 years.  Under this scenario, the ECB – either via ESM or directly – will have to provide support for an EU-wide system of banking deposits guarantees, and new writedowns of Greek debt, as well as full support package for Spain’s exchequer and banks. Ireland, in such a case, can, in the short term, benefit from some debt restructuring. Part of the package that will allow euro area to survive intact for longer than 6-12 months will involve increased transfer of structural funds to stimulate capital investment in the periphery, including Ireland.

On the other side of the spectrum, there is a 40% probability that Greece exits the euro area within 12 months either in a unilateral, unsupported and highly disorderly fashion (20%) or via facilitated exit programme supported by the euro area (20%). In the latter case, Ireland’s chances to achieve significant writedown of our debts will be severely restricted and our longer term membership within the euro area will be put in question. In the former case, post-Greek exit, the euro area will require very similar restructuring of debts and real economy transfers as in the first option above. Here, there is an equal chance that the EU will fail to put forward reasonable measures for preventing contagion from the disorderly Greek default to other countries, including Ireland, which would constitute the worst outcome for all member states involved.

Longer-term scenarios: 

In terms of longer horizon – beyond 3 years, the scenarios hinge on no disorderly default by Greece in short term, thus focusing on 80% probability segment of the above short term scenarios.

With probability of ca 30%, the coordinated response via ECB/ESM to the immediate crisis will require creation of a functional fiscal union. The union will have to address a number of structural bottlenecks. Fiscal discipline will have to be addressed via enforcement of the Fiscal Compact – a highly imperfect set of metrics, with doubtful enforceability. Secondly, the union will have to address the problem of competitiveness in euro area economies, most notably all peripheral GIIPS, plus Belgium, the Netherlands (household debt), France. As mentioned in the short-term scenario 1 above, growth must be decoupled from debt overhang and this will require simultaneous restructuring of real economic debt (corporate, household and government), operational system of banks insolvencies, and investment transfers to the peripheral states. The reason for the probability of this option being set conservatively at 30% is that I see no immediate capacity within euro area to enact such sweeping legislative and economic transformations. Much discussed Eurobonds will not deliver on this, as euro area’s capacity to issue such will not, in my view, exceed new financing capability in excess of 10% of euro area GDP.

The second longer-term scenario involves a 60% probability of the euro area breakup over 2-5 years. This can take the form of a break up into broadly-speaking two types of post-Euro arrangements.

The first break up arrangement will see emergence of the strong euro, with Germany at its core. Currently, such a union can include Finland, Benelux, Austria, and possibly France, Slovakia, and Slovenia. The remaining member states are most likely going to see re-introduction of national currencies. Alternatively, we might see reintroduction of 17 old currencies. Italy is a big unknown in the case of its membership in the strong euro.

In my view, once the process of currency unwinding begins, it will be difficult to contain centrifugal forces and the so-called ‘weak’ euro is unlikely to stick. Most likely combination of the ‘strong’ euro membership will have Germany, Benelux, Finland and Austria bound together.

Lastly, there is a small (10 percent) chance that the EU will be able to continue muddling through the current path of partial solutions and time-buying. External conditions must be extremely favourable to allow the euro area to continue in its current composition and this is now unlikely.

4/12/2012: Irish Exchequer Returns Jan-Nov 2012

So 2013 Budget will be expected to deliver 'cuts' and 'revenue measures' to bring fiscal stance €3.5 billion closer (or so the claim goes) to the balance. Which prompted the Eamon Gilmore to utter this:
"It is the budget that is going to get us to 85% of the adjustment that has to be made, and will therefore put the end in sight for these types of measures and these types of budgets".

Right. €3.5 billion will be added to the annual coffers on expectation side comes tomorrow. €3 billion will be subtracted on actual side comes March 2013 for the ritual burning of the promo notes repayments, and IL&P - the insolvent zombie bank owned by the state - will repay €2.45 billion worth of bonds using Government money comes second week of January. I guess, something is in sight, while something is a certainty-equivalent. €3.5 billion 'adjustments' vs €5.5 billion bonfire.

Six years into this shambolic 'austerity heroism' and we are, where we are:

1. On expectations forward, the Government will still have fiscal deficit of 7.5% of GDP in the end of 2013, should Gilmore's 'end in sight' hopes materialise. That is set off against pre-banks measures deficit of 7.3% in 2008. In fact, the 'end' will not be in sight even into 2017, when the IMF forecasts Irish Government deficit to be -1.8% - well within the EU 3% bounds, but still consistent with Government overspending compared to revenues.
2. Overall Government balance ex-banks supports in Ireland in 2012 will stand around 8.3% of GDP. In 2013 it is expected to hit 7.5% of GDP. The peak of insolvency was 11.5% of GDP in 2009, which means that by 2013 end we have closed 4 percentage points of GDP in fiscal deficits out of 8.5 percentage points adjustment required for 2009-2015 period. In Mr Gilmore's terms, we would have traveled not 85% of the road, but 47% of the road.

But wait, there's more. Here's a snapshot of the latest Exchequer returns for January-November 2012:

• Government tax revenue has fell 0.5% below the target with the shortfall of €171 million and although tax revenues were €1.96 billion ahead of same period (January-November) 2011, stripping out reclassifications of USC and the delayed tax receipts from 2011 carried over to 2012, this year tax receipts are running up 4.5% year on year.
• Keep in mind that target refers not to the Budget 2012 targets, but to revised targets of April 2012. 
• Meanwhile, Net Voted Government Expenditure came in at 0.6% above target. 
• So in a sum, on annualized basis, expenditure running 1.03% ahead of projections and revenue is running 0.86% below target. All of the sudden, the case of 'best boy in class' starts to look silly.

Things are even worse when you look at the expenditure side closer.

• Total Net Voted Expenditure came in at €40,635 million in 11 months through November 2012, which is €26 million above last year's, and  is 0.6% ahead of target set out in April. In other words, Ireland's heroic efforts to contain runaway public sector costs have yielded savings of €26 million in 11 months through November 2012.
• All of the net savings relative to target came in from the Capital side of expenditure, which is 20.5% below t2011 levels(-€629 million). Now, full year target savings on capital side are €562 million, which means that capital spending cuts have already overcompensated the expenditure cuts by €67 million. 
• On current expenditure side things are much worse. Relative to target, current spending is running at +1.7% (excess of €654 million). It was supposed to run at -1.6% reduction compared to 2011 for the full year 2012, but is currently running at +1.6% compared to Jan-Nov 2011. The swing is over €1.2 billion of overspend.
• Recall that in 2011 Irish Government expropriated €470 million worth of pensions funds through the 0.6% pensions levy in order to fund its glamorous Jobs Initiative. It now has cut €629 million from capital spending budget or €405 million more than it planned. In effect, thus, the entire pensions grab went to fund not Jobs Initiative, but current spending by the state.
• The savage austerity this Government allegedly unleashed saved on the net €26 million in 11 months. Pathetic does not even begin to describe this policy of destroying the future of the economy to achieve effectively absolutely nothing in terms of structural adjustments.
• The overspend took place, predictably, and at least to some extent justifiably by Health and Social Welfare. However, two other departments have posted excess spending compared to the target: Public Expenditure & Shambles-- err Reforms -- posted excess spending overall, while Transport, Tourism and Sport has managed to overspend on the current spending side of things.

On the balance side of things, stripping out banks measures and capital cuts, but retaining reclassifications of revenues and carry-over of revenues from 2011 into 2012, overall current account balance deficit was €9.626 billion in 2012, contrasted by the deficit of €9.712 billion in 2011. This suggests that the Government has managed to reduce the deficit on current account side by €86 million,

Laughable as this sounds, stripping out carry over revenues from 2011, the deficit on current side of the Exchequer finances was €9.45 billion in 2011 and that rose to €9.97 billion in 2012. Which means that the actual current account deficit is not falling, but rising.

Now, let's control for banks measures:

• In 2011 Irish state spent €2.3 billion bailing out IL&P, plus €3.085bn repaying promo notes for IBRC and €5.268bn on banks recaps. Total banks contribution to the deficit was thus €10.653 billion, This implies that overall general government deficit ex-banks was €10.716 billion in 2011.
• In 2012 we spent €1.3 billion propping up again IL&P (this time - its remnants) which implies ex-banks measures deficit of €11.668bn
• Wait a second, you shall shout at this point in time - 2012 ex-banks deficit is actually worse, not better than 2011 one. And you shall be right. There are some small items around, like our propping up Quinn Insurance fallout cost us €449.8mln in 2012 and only €280mln in 2011. We also paid €509.5 million (that's right - almost the amount the Government hopes to raise from the Property Tax in 2013) on buying shares in ESM - the fund that we were supposedly desperately needed access to during the Government campaign for Fiscal Compact Referendum, but nowadays no longer will require, since we are 'regaining access to the markets'. We also received €1.018 billion worth of cash from our sale of Bank of Ireland shares in 2011 that we did not repeat on receipts side in 2012. And more... but in the end, when all reckoned and counted for, there is effectively no real deficit reduction. Nothing dramatic happened, folks. The austerity fairy flew by and left not a trace, but few sparkles in the sky.
• Aside note - pittance, but hurtful. In 2012 Department for Finance estimates total Irish contributions to the EU Budget will run at €1.39 billion gross. For 2013 the estimate is €1.444 billion. That is a rise of €59 million. Put this into perspective - currently, the Government has run away from its previous commitment to provide ringfenced beds for acute care patients at risk of infections, e.g. those suffering from Cystic Fibrosis. I bet €59 million EU is insisting this insolvent Government must wrestle out of the economy to pay Brussels would go some way fixing the issue.

In the mean time, our interest payments on debt have been steadily accelerating. In January-November 2011 our debt servicing cost us €3.866 billion. This year over the same period of time we spent €5.659 billion plus change on same. Uplift of 46.4% in one year alone.

So here you have it, folks. This Government has an option: bring Irish debt into ESM, for which we paid the entrance fees, and avail of cheap rates. Go into the markets and raise the cost of funding our overall debt even higher - from €6.17bn annual running cost in 2012 to what? Oh, dofF projects 2013 cost to be €8.11 billion - a swing of additional €1.94 billion. So over two years 2012 and 2013, Irish debt servicing costs would have risen by €3.89 billion swallowing more than 1/2 of all fiscal 'adjustments' to be delivered over the same two years.

At this stage, there is really no longer any point of going on. No matter what this Government says tomorrow, no matter what Mr Gilmore can see in his hazed existence on his Ministerial cloud cuckoo, real figures show that Europe's 'best boy in class' is slipping into economic coma.